The assets are valued at about $4 billion, according to the people, who asked not to be identified while talks are continuing. UnionBanCal Corp., the Japanese bank’s San Francisco-based unit, plans to acquire the business from Morgan Stanley, the people said. Nikkei newspaper, which earlier on Sunday reported the negotiations, said the deal would need approval from the US.

The purchase by Morgan Stanley’s largest shareholder would underscore Japanese banks’ interest in acquiring assets to expand operations, especially overseas, as demographic changes including a shrinking and aging population slow lending demand at home. Mitsubishi UFJ this month agreed to pay $3.7 billion for US property lending assets from Deutsche Bank AG through UnionBanCal.

Mika Watanabe, a Morgan Stanley spokeswoman in Tokyo, and Yuji Okumura, a spokesman for Mitsubishi UFJ in the city, both declined to comment. The Japanese bank owns a 22% stake in Morgan Stanley, according to data compiled by Bloomberg.

Shares of Mitsubishi UFJ were unchanged in Tokyo trading on 26 April at ¥660. They have gained about 85% since mid-November, when an election campaign began that ushered Prime Minister Shinzo Abe into office on a pledge to stoke inflation. The benchmark Nikkei 225 Stock Average has advanced 57%. Japan’s exchanges will be closed on Monday.

US Purchases

Mitsubishi UFJ has stepped up acquisitions in the US, buying UnionBanCal in 2008 and Santa Barbara-based Pacific Capital Bancorp last year as persistent deflation inhibits loan demand at home. The announced purchase of US real-estate loan assets from Deutsche Bank will boost its commercial lending business, mainly on the east coast.

Other acquisitions in recent years have included its trust banking unit’s deal to purchase a 15% stake in AMP Ltd.’s Australian asset-management business in December 2011, and a buyout of project financing assets previously owned by Royal Bank of Scotland Group Plc.

In the current year, the Japanese lender may increase dividends for the first time in six years, raising payouts to ¥14 a share, as government stimulus measures improve earnings prospects, according to seven of nine analysts surveyed by Bloomberg earlier this month.

Earnings Growth

Mitsubishi UFJ probably had net income of ¥726.2 billion ($7.4 billion) for the year ended 31 March, surpassing the company’s ¥670 billion target, according to the median estimate of 16 analysts in a Bloomberg survey. Japan’s megabanks are scheduled to report earnings in mid-May.

Rising capital buffers at Mitsubishi UFJ may encourage it to buy back its stock to return gains to shareholders, the survey showed. Five of the nine analysts said Japan’s largest bank will probably repurchase shares as well as increase dividend payouts during the current fiscal year.

The bank has built up capital by accumulating retained earnings and from share sales in the aftermath of the 2008-2009 global financial crisis. It’s also expanding abroad to make up for shrinking profitability on domestic loans amid record-low interest rates. Bloomberg